Comcast warns of pressures in broadband, its cornerstone unit

Comcast topped Wall Street earnings and revenue estimates for the third quarter on Thursday, but revealed widespread pressures in its broadband unit that spooked investors.

The company said it lost 104,000 domestic broadband customers during the period, bringing its total subscriber base to roughly 31.4 million. This marked the fourth quarter in a row that Comcast failed to grow its broadband customer base. 

Earlier this year the company outlined initiatives meant to drive broadband growth — the cornerstone of Comcast's business — as it has faced fraught competition from alternative providers, namely 5G companies. The company, soon to be led by co-CEOs Brian Roberts and Mike Cavanagh, will be even more reliant on connectivity in the new year after its planned Versant transaction to offload cable network assets. 

During Thursday's call with investors, Cavanagh reiterated the "broadband environment remains intensely competitive."

Comcast leadership said the broadband business will experience a decline in earnings as its strategy to focus on the mobile business, simplify pricing bundles and enhance broadband-related products and WiFi is put into effect. That decrease began this quarter and will carry through future quarters, the said.

CFO Jason Armstrong also said the division's average revenue per user, or ARPU, wasn't expected to grow as the company focuses on initiatives to maintain and grow its customer base. As broadband subscriber additions have slowed or reversed, Comcast has typically focused on the company's rising ARPU, which is driven by price increases and upselling packages.

The change in broadband playbook means the bright spot that was once rising ARPU doesn't exist in the near term for Comcast.

"As we've said from the beginning, this pivot carries several costs, including rate reinvestment through pricing simplicity, which carries revenue dilution as well as investment in customer experience, which carries additional operating costs," Armstrong said on Thursday's call.

This marked the first quarter in which those costs hit Comcast's results, Armstrong said. It translated to a 3.5% decline in earnings before interest, taxes, depreciation and amortization across the company's connectivity and platforms business – made up broadband, mobile, pay TV and other services.

Revenue for the company's overall connectivity and platforms business came in at $20.18 billion, down nearly 1% from the same period last year. 

"On the other side of this, we're positioning ourselves for growth with a more durable broadband customer base," Armstrong said.

The refocusing of the broadband strategy also aligned with a leadership change for the unit.

On Thursday, Comcast announced Steve Croney would take over as CEO of the connectivity and platforms division, succeeding longtime leader Dave Watson. Croney has been serving as the chief operating officer of the group amid its new strategic push.

While Comcast has moved toward mobile, that customer base has grown. Comcast said Thursday it added a record number of mobile customers – 414,000 during the third quarter, bringing its total to 8.9 million lines.

Meanwhile, the exodus from the pay TV bundle continued, with Comcast reporting the segment lost 257,000 customers during the period. As of Sept. 30, Comcast had 11.5 million domestic pay TV customers. 

Shares of the company were down about 4% in early trading. In the last year, Comcast shares have fallen about 35%.

Comcast's overall business, which consists of the Xfinity-branded broadband, cable TV and mobile group as well as NBCUniversal, outperformed Wall Street's estimates. 

Here's how Comcast performed for the period compared with average analyst estimates, according to LSEG:

For the quarter ended Sept. 30, net income attributable to Comcast decreased 8% to $3.33 billion, or 90 cents per share, compared with $3.63 billion, or 94 cents per share, a year earlier. 

Adjusting for one-time items, such as interest expense and the value of certain assets, Comcast reported earnings per share of $1.12 for the quarter. 

The company's adjusted EBITDA was down roughly 1% to $9.7 billion. 

Overall revenue fell nearly 3% to $31.2 billion, compared with $32.1 billion in the same period last year. 

Revenue for the company's media unit, which houses NBCUniversal, was $6.6 billion, down almost 20% during the period. 

Excluding the impact of the Summer Olympics, which took place during the same period last year, revenue was up 4% year over year. 

The media division reported EBITDA of $832 million, up 28% year over year, driven in part by streaming service Peacock. 

Peacock, which had 41 million subscribers as of Sept. 30 — essentially flat for the last three quarters — reported losses of $217 million for the quarter, an improvement from $436 million in losses during the same period last year. 

In October NBCUniversal's media rights deal with the NBA kicked off, bringing professional basketball back to broadcast network NBC and introducing it to Peacock. The addition of the NBA is expected to give Peacock a boost. 

Meanwhile, revenue for the film studio was up 6% to $3 billion – boosted by the release of "Jurassic World Rebirth" in July. 

Theme park revenue increased nearly 19% to $2.72 billion, with EBITDA for that unit up 13% to $958 million due to the opening of Epic Universe in May. 

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC. Versant would become the new parent company of CNBC upon Comcast's planned spinoff of Versant.